The draft Transfer Pricing Documentation Act that has already been awaited for some time provides for the introduction of obligatory standardized transfer pricing documentation. The draft legislation is based on the OECD’s three-tiered standardized approach to transfer pricing documentation and also imposes penalties in case of failure to comply with Country-by-Country reporting (“länderbezogene Berichterstattung”).
Implementing BEPS action 13.
In the course of the BEPS project (setting out a step plan against “Base Erosion and Profit Shifting” in tax law), the OECD introduced extensive changes to existing transfer pricing documentation processes (i.e. the Master File and Local File concept) and created an additional documentation element with the Country-by-Country (CbC) Report. Austria will follow the OECD guidance and implement the requirement to prepare a CbC Report already for fiscal years starting on or after 1 January 2016. At the same time, the preparation of the transfer pricing documentation will be mandatory and the Master File concept is considered a standardized approach.
In future, the transfer pricing documentation will be a standardized process for the majority of Austrian companies that are members of multinational groups. Therefore, the preparation of a Master File (“Stammdokumentation”) and a Local File (“landesspezifische Dokumentation”) will be mandatory. Whereas details on the content of those files will be laid down by decree, it may be assumed that the details will correspond largely to those proposed in the OECD reports.
Companies should not lose time and be well prepared for FY 2016. Although the transfer pricing documentation reports do not have to be filed together with the tax return, the Master File and the Local File need to be submitted upon request of the tax authorities within 30 days after filing the corporate income tax return. Keeping in mind the extensive scope of information that needs to be prepared, we can – based on our previous experience – only recommend an early “kick off” for documentation projects.
The entire documentation generally needs to be filed in an official language accepted by the competent authorities, whereas it is allowed to file the documentation in English in order to meet the submission deadline. However, tax authorities may request an officially certified translation.
According to the Transfer Pricing Documentation Act and in line with the OECD concept, an Austrian resident ultimate parent company needs to submit a CbC Report to the competent tax authority. In addition, an Austrian entity has to assume the responsibility to submit the CbC Report in exceptional cases even though it is not the ultimate parent company. A similar legislative requirement has also been implemented in other countries in order to ensure the exchange of CbC information between the countries listed in the report, even if the exchange of information with the ultimate parent company’s country or jurisdiction cannot be made legally or factually. If the ultimate parent company is resident in Austria, the CbC Report has to be filed for fiscal years starting on or after 1 January 2016. In the case of the Austrian entity assuming the filing responsibility for the foreign ultimate parent company, the CbC Report may be submitted for fiscal years starting on or after 1 January 2017. The deadline for electronic submission of CbC Reports via “FinanzOnline” is twelve months after the last day of the relevant fiscal year. An ultimate parent company resident in Austria will therefore have to file the CbC Report on 31 December 2017 at the latest, provided that the fiscal year concurs with the calendar year.
As expected, a threshold for the filing of a CbC Report has been implemented in the amount of EUR 750 million of consolidated group revenue. If the threshold was not exceeded in the preceding fiscal year, the multinational group of companies does not have to prepare CbC documentation in Austria either. Regarding the standardized requirements for documentation (i.e. preparation and submission of Master File and Local File), a member of an international group of companies resident in Austria that generated revenues in the preceding fiscal year beneath EUR 50 million is exempt from these documentation requirements. However, this threshold can be disregarded in the case that despite revenues of beneath EUR 50 million, commission revenues generated with foreign affiliated entities amounted to more than EUR 5 million in the preceding year. According to the explanatory notes, this threshold shall be introduced for the purpose of adequately including commissionaire and agent structures, in which revenues are limited to commissions. Regardless of any thresholds, the competent authority can request the Master File if the ultimate parent company is required to prepare a Master File documentation according to local legislation. Smaller companies have to provide documents to the tax authorities upon request based on general documentation requirements to justify their intercompany pricing.
The draft legislation provides for penalties associated with CbC reporting if the report is not filed within the prescribed period or data to be submitted is missing or incorrect. Subject to the intentional violation of those requirements, which constitutes a fiscal offence, the penalty can amount to up to EUR 80,000. In the case of a grossly negligent violation of the above-mentioned requirements, the penalty can amount to max. EUR 25,000. According to the explanatory notes to the draft legislation, the Austrian entity shall not be fined if a complete and accurate submission of the documentation is not possible due to the fact that the entity is factually missing the required information and also lacks the legal means to acquire the information. A negligent submission of incorrect data shall not be subject to penalties.
The Transfer Pricing Documentation Act is strongly based on the recommendations of the OECD BEPS project and de facto provides for documentation requirements for all Austrian companies that conduct cross-border intercompany transactions. Even though the final legislation still has to be released, thresholds and contents are sufficiently provided. Companies that are affected by the documentation requirements should therefore start with the preparation process right away.
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